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Answered: - MGT411 (Money & Banking) Semester 2016 Marks: 10 Define Risk and


MGT411 (Money & Banking)

Semester 2016

Marks: 10

  • Define Risk and Variance?
  • A person purchases an asset for $2000. There is the possibility that the value of this asset may fall to $1700 or rise to $2400. The probability of rise and fall is the same. This information can be presented in a tabular form as:

Investment : $2000

Possibilities

Probability

Pay Off

Fall

1/2

$1700

Rise

1/2

$2400

How much risk is involved in this investment? Explain your answer by calculating Variance. Calculation must consist of all the steps.

Discuss the following topics:

  • Coupon Bonds
  • Zero Coupon Bonds

Instructions:

  1. This assignment covers 9 to 14 lectures.
  2. Use 12-point font size in Times New Roman.
  3. Show all the necessary calculations.
  4. Upload your assignment with in due date and time. No assignment will be accepted after the due date and time.
  5. No credit will be given to copied assignments.

Step 1:

 

Compute the expected value

 

Investment : $2000

 

Possibilities

 


 

Probability Pay Off Payoff ? Probability

 


 

Fall

 


 

1-Feb

 


 

$1,700

 


 

(1/2) ? $1700= $850

 


 

Rise

 


 

1-Feb

 


 

$2,400

 


 

(1/2) ? $2400=...

 


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